Love of college sports gear leads to N.C. sales tax losses

When customers buy gear from the official online stores of University of North Carolina at Chapel Hill, North Carolina State University, East Carolina University, Appalachian State University and others, they don't pay a penny in sales tax.

The companies that run their online sites are out of state, so despite the fact the schools are state-owned and state-run and a lot of the merchandise comes from stores in North Carolina, the goods are tax-free for fans.

Tar Heel gear, for example, is big business. Boosted by the 2009 national championship, UNC’s athletic deal with Nike and apparel sales brought in nearly $6 million in royalties to support academic programs.

The independently owned Tar Heel Bookstore in Chapel Hill is one of the hot spots to buy anything and everything Carolina. When customers check out in-store or on the book store's website, they pay sales tax.

Manager Christian Campbell said he doesn't believe it's fair that UNC's official site sells tax-free, especially when the supplier is his competitor just a few doors down Franklin Street, Chapel Hill Sportswear.

“I think that it's a competitive advantage that they have,” Campbell said. “But they’re not taking that discount out of their own pocket. It’s coming out of the pocket of the state of North Carolina.”

N.C. State's official store sits along Wade Avenue in Raleigh. The store supplies all the merchandise for online orders that come through CBS Interactive, which took over the school's web-based business on Aug. 1. Officials quickly realized sales tax wasn't being charged for North Carolina-bound memorabilia.

“We’ve gone back and looked, and we had numerous orders – 300 orders – that were not charged sales tax, so we’re in the process of adding all that up and making sure it gets paid, whether we pay it or CBS pays it,” said store manager Ruth Hearn.

A CBS Interactive spokesman said it’s perfectly legal not to charge sales tax. CBS handles the order, buys the merchandise wholesale, and then sells it to online customers, he said.

“Since CBS does not have business entities in North Carolina, we are not required by law to pay state tax,” the spokesman said.

Still, Hearn said she believes something's not quite right when you can walk into the Go Pack Store and pay sales tax, but shipping orders processed in the back of the store are tax-free.

“I think sales tax should be charged in North Carolina. It’s only fair. It doesn’t make sense it would be charged out here and 2 feet away it not be charged. It’s the same merchandise,” she said.

House Minority Leader Paul Stam says it's an issue the schools or the legislature need to address.

“I think it’s ironic that an agency of the state of North Carolina, which is supported by the taxpayers, is not collecting this tax which is otherwise due if it was selling the same thing from the store at Chapel Hill or Raleigh,” said Stam, R-Wake. “The University of North Carolina, since all of its campuses are here, should insist that its online retailers collect the sales tax.”

Until that happens, competing shops will continue to cry foul for what they see as an uneven playing field.

“If they are doing the fulfillment out of this store on Franklin Street and they're shipping to North Carolina, they should have to pay the same sales tax that we do,” Campbell said.

Due to a push from Go Pack and Wolfpack Marketing, CBS Interactive told WRAL that it will now start collecting sales tax. As for other schools, a spokesman says that will be handled on a case-by-case basis.

It's hard to put a dollar figure on how much money the state has lost just in collegiate apparel. CBS handles sales for seven other in-state schools, including Wake Forest University, which is private.

The Department of Revenue, which has made collecting taxes on online purchases a priority, cited taxpayer confidentiality in declining to comment on the issue.

“Tax liability resulting from relationships between North Carolina entities and online retailers depends on a number of factors, including the terms of any contractual agreement between the retailer and the N.C. entity," spokeswoman Beth Stevenson said in a statement. "In any situation where an item was purchased online and the retailer did not collect sales tax, the buyer is responsible for reporting consumer use tax on their individual tax returns.”

The department is embroiled in a lawsuit with online retail giant Amazon.com over its pursuit of information about purchases made through the website by North Carolina residents or delivered to the state.